Steve Brozak is President of WBB Securities, LLC, an investment bank and research firm that specializes in the biotechnology, specialty pharmaceutical and medical device sectors. Mr. Brozak is an award winning analyst whose research has been singled out from his peers for accuracy and performance year after year by the financial industry's most highly regarded rankings organizations. His research is currently monitored by the StarMine and FactSet platforms. Mr. Brozak has written articles and opinions for Forbes, CNN, ABC News, and Businessweek-Bloomberg on trends in the healthcare sector, and he appears regularly as a guest commentator on financial television outlets such as Bloomberg, BNN, CNN and CNBC. Mr. Brozak is an outspoken advocate for the absolute need for changes in how we research and finance our healthcare system. He retired as a Lieutenant Colonel from the US Marine Corps and recently completed a three-year appointment to the Navy and Marine Corps Retiree Council under the SECNAVs authority where he focused is on healthcare, and other retiree issues. Mr. Brozak received both his BA and MBA from Columbia University. To learn more about WBB Securities, please visit www.wbbsec.com.

Breaking US Healthcare: Sequestration, Shutdown And The Looming Debt Ceiling

No, this article isn’t about Obamacare; it’s about the perceived stability of our healthcare system. When the government shut down on October 1st, Congress authorized continued payment to our service men and women in uniform, understanding their critical importance to the protection of our nation and its interests. What Congress does not understand are the twin needs to protect and foster our long-term investor confidence as well as safeguard our critical federal healthcare activities and healthcare industry.

As a Wall Street healthcare analyst, I am acutely aware of how vulnerable the financial ecosystem that supports our healthcare investment, development and delivery has become.

Every day the shutdown and talk of debt default continues, it has inescapable negative impact on current and future healthcare in the U.S. This negative impact has everything to do with the proactive vigilance of commercial healthcare companies and government entities that keep us healthy today. It has everything to do with the continued fostering of a fragile development system that requires frequent infusions of investor capital to keep us healthy in the future through the discovery of new drugs.

This brings us to the first of the twin concerns.

Amputated Basic Government Health Operations

When the U.S. Food and Drug Administration (FDA) is forced to cut 45 percent of its staff, totaling 6,620 employees, even basic mandated activities become an issue. Most people continue to have confidence in the purity and safety of our food, vaccines, medicines, medical devices, and cosmetics under the vigilance of the FDA and other agencies. Yet since the beginning of the shutdown, 80 food processing plants are uninspected each day, and over time, the accumulation could have a serious adverse impact on the nation’s food supply, perhaps leading to an unintended outbreak of food borne illnesses.

A woman is given a flu shot. The Centers for Disease Control and Prevention has said that this year's flu season is expected to be one of the worst the country has seen in 10 years. (Image credit: AFP/Getty Images via @daylife)

Even more alarming, we are now at the beginning of the annual flu season, yet the Centers for Disease Control’s (CDC) national flu monitoring program is no longer operational. Through the work of the CDC and other agencies, we have come to regard flu as a predictable threat and expect vaccines to be available when they are needed. But even with the vigilance of the CDC, on average, there are 200,000 hospitalizations and tens of thousands of seasonal flu-related deaths each year. Without government surveillance and coordination, that number could be much higher this flu season.

Moreover, the National Institute of Health (NIH) and the National Science Foundation(NSF) are withholding grants scheduled to start, have stopped processing new applications, and the NIH has halted internal research with a 73% furlough. Consequently scientific progress has been stunted, and there are no guarantees that grant processing will catch up by the next cycle – especially because you can’t start and stop such a system on a whim. Continuity of development is essential because it takes years, sometimes a decade, to traverse the FDA approval process for a new drug and there are so few successes.

(Image credit: AFP/Getty Images via @daylife)

If the flow of new ideas for improving healthcare becomes questionable; if the FDA clearance process becomes questionable; if government grants become questionable, then financial risk grows and investors will look elsewhere to invest their funds. Investors and commercial science managers don’t just like predictability, they live for it. What we are witnessing today is anathema to their very existence.

This leads us directly to the second twin concern.

Loss of Faith in Healthcare Innovation

Frankly, the third quarter earnings reporting period starts next week and the usual updates of the state of public and commercial medical progress are now guaranteed to be overshadowed. Companies that report prior to the debt ceiling deadline on the 17th include Johnson & JohnsonJohnson & Johnson (JNJ), Abbott LaboratoriesAbbott Laboratories (ABT), and Baxter InternationalBaxter International (BAX). These companies will all have to deal with questions of how their franchises are being affected by current events. With major pharmaceutical players such as Merck & CoMerck & Co. (MRK) having recently announced both additional layoffs and cutbacks we now face the questions of who is next and what steps CEOs may have to demonstrate performance. This however is not the worst of it.

(Image credit: AP Images via Business Insider)

When capital market confidence deteriorates because of political-gridlock no amount of legislation can undo the damage done. Witness the current debate on whether the tax on products developed and sold by medical device industry leaders like MedtronicMedtronic, Inc. (MDT) should remain or be eliminated. A valid question for policy advocates, but secondary in importance when the confidence of all shareowners and ultimately future investors rethink options beyond the single equity. As the shutdown continues, investors in all healthcare segments are likely to re-evaluate their portfolios due to delays in basic agency oversight and other suspended activities.

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